Payments are at the heart of any transaction, whether physical or digital. Friction or delay is a major drag on commercial transactions and ultimately creates dislocation across entire ecosystems. Digital payments, including both instant payments and mobile money, help accelerate and streamline transactions, facilitating the digital economy. By using the right payment and collection methods, companies can make the customer and supplier experience fast and frictionless, while reducing the cost of doing business and improving competitiveness.
Global eCommerce sales grew by 19% in 2020 to reach $4.6 trillion. By the end of 2020, 10% of all transactions were conducted digitally, including business-to-business (B2B) as well as B2C (business-to-consumer) sales1. Digital or mobile wallets accounted for almost 45% of eCommerce transactions, a near-7 fold increase on 2019 (6.5%)2, driven particularly by Asia Pacific (figure 1). Consumers are attracted to the speed, convenience and ease of mobile wallet payments, with growth fuelled by the global increase in mobile phones, and the expansion of 5G networks.
Embracing mobile wallets is essential for any company selling direct to consumers or small businesses, whether in person or online, both across their existing footprint and in new markets. By doing so, they can engage with the widest spectrum of potential customers and suppliers, including the unbanked, whilst reducing the risk and cost associated with cash. These costs can be substantial: according to Standard Chartered, the average cost to the merchant of processing cash is 5-6% of the transaction value, compared with 0 – 0.5% for mobile payments. Given slim margins for consumer-facing industries, particularly restaurants and small retailers, incentivising mobile payments over cash can improve net margins by up to 30%.
Corporate payment behaviour is also going through a transformation. Instant payment schemes are proliferating globally as central banks and clearing houses develop their payment offerings to better support the digital economy. Companies benefit from real-time or near-real time settlement, often 24/7, leading to improved working capital, reduced credit risk and the ability to manage intraday liquidity.
Devising Payment Strategies
Many retailers stopped accepting cash during the pandemic, and as consumer behaviour has shifted, there is little reason to start doing so. However, we are also seeing restaurants and retailers in countries such as Singapore move away from cards in favour of PayNow, Singapore’s instant payment scheme. Customers simply scan a QR code to make a payment direct from their bank account from their phone.
Debit and credit cards remain common in many western markets, the merchant costs of credit cards can be high: 2 – 4% of transaction value on average. Traditionally, many consumers have been attracted by the credit component, but these advantages are matched by ‘buy now, pay later’ schemes, which can be used across multiple payment methods, including instant payments and mobile money.
Meeting Expectations, Improving Competitiveness
The digital payments journey is accelerating, with instant payments and mobile money become increasingly embedded into consumer and business payment culture. As the choice of payment methods expands, companies of all sizes need to refine their payment and collection options to balance customer reach and convenience with the operational, cost, credit and working capital needs of the business. Shifting to mobile, digital wallet and instant payments and collections can also improve net margins by as much as 30%, whilst also enhancing the customer experience.
1 Global Payments Report 2021. Worldpay by FIS. https://worldpay.globalpaymentsreport.com
2 Ibid. Worldpay by FIS